In the course of the Commission’s work, it has learned that getting the details right in defining the terms of health benefits plans and the provisions of new retirement programs, coordinating them with each other, and managing the transition from existing programs are major technical undertakings. As such, they cannot be the responsibility of an appointed Commission with limited resources and a limited time in which to act. For this reason, the Commission recommends that the Governor establish an Implementation Task Force to assume this responsibility and that the Task Force have all the resources necessary, including staff and legal and actuarial support, to address these complex implementation and transition issues.

Why is it that the New Jersey legislature can’t take up the implementation part now that they have a roadmap? Two reasons….

They are, for the most part, part-timers looking to game the system for their own benefit and do not have the wherewithal, nor often the inclination, to actually legislate without a good reason

They need to be bribed to get anything done

It is that second part primarily that requires the Task Force. Legislators can’t very well take the $100 million or so that the Task Force would have as resources and pay themselves directly so it needs to be done through a cabal consisting of connected lawyers, lobbyists, and other insiders with the connections to not only ‘persuade’ legislators to pass the CF but also to spread money to think tanks and media outlets to manufacture support.

]]>https://burypensions.wordpress.com/2015/03/03/cf10-why-an-implementation-task-force/feed/1burypensionsCF9: Who Pays For All Thishttps://burypensions.wordpress.com/2015/03/02/cf9-who-pays-for-all-this/
https://burypensions.wordpress.com/2015/03/02/cf9-who-pays-for-all-this/#commentsMon, 02 Mar 2015 21:34:23 +0000http://burypensions.wordpress.com/?p=6698]]>Page 11 of the Roadmap outlines the panel’s conception of where the state will get the money to pay off that $180 billion in pension and health benefit liabilities:

…because local health benefits costs are so high, even moderate reforms would result in huge local savings. If aggregated, these savings could permit a higher overall level of post-reform benefits and more equitable State/local allocation of benefit obligations at no additional cost to local taxpayers. In contrast, as illustrated in Table IX in the Implementation Issues section of this Report, a State-level-only reform would generate a need for over $1.5 billion in new revenue at the State level. Given the dire need, the extent to which State funds already play a significant role in funding local benefits, and the fact that local savings would not exist but for statutory and constitutional reforms intended to address the State-level crisis, the Commission believes that it is appropriate to dedicate these local savings to help close the State and local pension funding gaps. At the same time, the Commission is sensitive to the existing burdens on municipalities and believes that the local impact of this approach should be limited to aggregating local savings for use in funding the pension deficit. As a result, this reform would be cost-neutral to local governments.

So how much was the state thinking of offloading?

Page 22 estimates the number:

Funding of education retirement benefits has ballooned into a $2.5 billion annual obligation for local education pensions (if paid in full in 2016) and, absent reform, a projected $1.4 billion burden in 2016 for local education retiree health benefits. In addition, the $750 million annual obligation for local education employers’ contributions to Social Security is also paid by the State. The condition of local benefits is merely the flip side of the State subsidizing what otherwise would be a $4.6 billion annual local obligation.

The state wants to transfer that $4.6 billion it is supposed to be paying to cover the health benefits, pensions, and the employer portion of Social Security for about 243 thousand teachers with total active payroll of around $10 billion to local governments who are now paying for 363 thousand people with annual payroll of around $11 billion all with the expectation that it will only take “moderate reforms” to local health benefits to make it unnoticeable to property-tax payers.

]]>https://burypensions.wordpress.com/2015/03/02/cf9-who-pays-for-all-this/feed/6burypensionsnj partsCF8: The New Planhttps://burypensions.wordpress.com/2015/03/01/cf8-the-new-plan/
https://burypensions.wordpress.com/2015/03/01/cf8-the-new-plan/#commentsSun, 01 Mar 2015 21:29:51 +0000http://burypensions.wordpress.com/?p=6692]]>Page 10 of the Roadmap outlines the panel’s conception of the benefits that it believes the state can afford:

Obviously, to be an effective reform, the new plans must also cost less going forward than the old plans would. As a starting point, the Commission has assumed that the employer and employee contributions would each be 4% of salary, with 8% employer and employee contributions for employees who, like many firefighters and police officers, do not participate in Social Security. Based on a total State/local government payroll of $26.637 billion, the Commission estimates the employer cost of the new plans would be $1.23 billion. The Commission believes that this is an affordable initial baseline for contributions, subject to augmentation in the event that quantification of costs and savings establishes the affordability of a higher level of employer contributions.

But what would that mean in real money for, let’s say, a public employee retiring after 25 years of service at a final salary of $100,000?

Below we compare what this retiree would get under the current plan formula* and then what they would have gotten had the cash balance plan being pushed been in place instead during their working lifetime under both the PERS and PFRS plans.

Under both scenarios retirees would get about 34% of the pension value under the proposed cash balance plan that they now get with the current traditional defined benefit plan.

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* PERS assumes high 3-year-average salary and a life annuity normal form of benefit
PFRS assumes final 1-year salary and a J&50%S normal form
The difference in the form of benefit and the later average retirement age typical for PERS retirees accounts for the difference between the PERS and PFRS estimated annuity factors, 13 and 16 respectively.

transferring the assets, liabilities and full responsibility for the existing pension and new retirement plans to employee entities willing and able to assume this obligation. 23

23 The “employee entities” holding the plans may have to be structured as “government plans” to comply with ERISA and other regulatory requirements and tax considerations. In this Report, “employee entities” refers to plan structures that satisfy these requirements while providing employees with the greatest permissible degree of ownership and control over the assets and liabilities of the plans. Determining the exact form of entity that would satisfy these requirements will be one of the tasks to be undertaken by the Implementation Task Force discussed in this Report.

Later on page 12 of the report another sweetener:

The preceding elements of the Commission’s approach would reduce the State’s obligation to fund the existing pension plans to a predetermined sum each year. This would, in turn, facilitate transfer of the assets and liabilities of these plans and of the new retirement plans to employee entities willing and able to assume these obligations. If this were done, employees would control their own destiny with respect to these benefits – and assume the risk of managing the plans to ensure that the available funds are sufficient to pay for the provided benefits. This transfer would permit the State to provide the bond market with a much greater degree of cost certainty.

Here is the real deal on this proposed transfer:

The unions would like to have the assets under their control (as unions in the private sector do with multiemployer plans) since part of that money can be doled out to their friends in the investment and legal fields or even to themselves*.

However in the private sector multiemployer plans are covered under ERISA, most notably by the funding rules, which is something those running these zombie plans would want to avoid. In addition ERISA would bring the Pension Benefit Guaranty Corporation (PBGC) into the picture which is a coverage not sought by government unions (who do not want the added oversight) or the PBGC itself (which would not want the added liabilities) or even plan participants (now that there is a mechanism for cutting benefits). Hence we have that footnote 23 which seems to imply that ERISA would need to be amended to assure that these public sector multiemployer plans are exempt under ERISA**.

As for providing “providing the bond market with a much greater degree of cost certainty” this may have something to do with taking those massive liabilities off of the state’s books (though presumably the obligation to pay would still be there based on what the NJEA and other unions bill) until such time as GASB catches on.

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* On the form Schedule C attachment to the 5500 filing anyone getting at least $5,000 must be listed. Check out all the professionals and fund employees on this filing.

** Or the footnote could mean that ERISA would need to be amended to assure that these public sector multiemployer plans are NOT exempt under ERISA since it may be a way to dump those unfunded liabilities onto the PBGC. Either interpretation is possible since when you are drafting language with hidden meaning sometimes the real meaning gets lost.

Once the existing pension plans are frozen, new plans would be needed to provide employees with the means to earn future retirement benefits. The Commission believes that what is known as a “cash balance” plan provides the best model for the new plans. A cash balance plan is a hybrid defined benefit plan that expresses the employee’s benefit as an account balance that, as proposed by the Commission, grows by “pay credits” based on an employee’s salary, and by periodic “interest credits” based on the account’s balance and some defined measure of investment performance. Under the form of a cash balance plan envisioned by the Commission, an employee would be guaranteed both the contributions based on pay credits made to his or her account.

Design is all-important but if the idea is to have a flat percentage of salary as the “pay credit” it would solve the equity problem of participants close to retirement accumulating massive benefits but the biggest problem and source of all the coming misery remains.

The New Jersey retirement system is bankrupt primarily because politicians, abetted by actuaries, got to pick their contribution amounts. That would not change with a cash balance plan which is still a defined benefit plan that uses funding methods susceptible to manipulation.

All a switch to a cash balance defined benefit plan will do (as IBM employees learned) is curb outsized accruals for older employees which those employees might consider discriminatory (as may a Superior Court judge eventually).

]]>https://burypensions.wordpress.com/2015/02/28/cf6-cash-balance-no-cure-all/feed/14burypensionsCF5 – Ballot Question Hustlehttps://burypensions.wordpress.com/2015/02/27/cf5-ballot-question-hustle/
https://burypensions.wordpress.com/2015/02/27/cf5-ballot-question-hustle/#commentsFri, 27 Feb 2015 14:58:07 +0000http://burypensions.wordpress.com/?p=6673]]>For the Christie Freeze to work public employee pension and health care benefits must be cut significantly and the cleanest way to accomplish this is to put it into the New Jersey Constitution. However a ballot questions saying ‘benefits can be cut at any time to whatever level we damn well please’ probably won’t pass so they coupled it with a completely useless provision to ‘guarantee the certainty of a pension funding payment with a constitutional amendment’ and that is what Governor Christie emphasized:
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But what good is a guarantee of a payment number that you get to pick? The 2011 pension reform law also had a guarantee and that didn’t amount to much.

There were two pages on the proposed constitutional amendment in the Roadmap and the amendment had two parts:

Modification of Existing Benefits

Creating a Sustainable and Certain Pension Funding Obligation

If both parts pass is a stronger guarantee worth anything if the contribution amount being guaranteed is now completely within the state’s control. If you get the ability to modify (i.e. reduce) benefits then do you also not get the ability to reduce contributions?*

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* This would be in addition to the existing ability to intimidate/cajole/bribe your actuaries into getting you lowball contribution numbers.

Freezing existing pension plans at the State and local levels means that the plans would be closed to new members and that existing members would no longer accrue additional benefits under those plans. Existing plan assets and future State contributions would be used fund the benefits of existing retirees and the benefits accrued by employees through the date of the freeze. The plan-funded 46pension benefits of existing retirees would not be affected, and no one would lose a benefit credit for service before the freeze.

But what about the cost-of-lving-adjustments on pensions that were eliminated in 2011 and have been the subject of court action ever since? As commenter truthnolie noticed when you follow that 46 next to the word ‘plan-funded’ to its footnote:

46 The cost of living adjustments (COLAs) at issue in Berg v. Christie, 436 N.J. Super. 220, 241 (App. Div. 2014) are not funded by the existing plan and would not be preserved or restored under the Commission’s proposal.

]]>https://burypensions.wordpress.com/2015/02/26/cf4-colas-a-footnote/feed/38burypensionsCF3: Why a Ballot Questionhttps://burypensions.wordpress.com/2015/02/25/cf3-why-a-ballot-question/
https://burypensions.wordpress.com/2015/02/25/cf3-why-a-ballot-question/#commentsWed, 25 Feb 2015 22:45:42 +0000http://burypensions.wordpress.com/?p=6662]]>For the proposed pension reforms to work the New Jersey State Constitution needs to be changed and the reasons are explained on page 12 of the pension commission’s report:

This Report differs from other reform proposals in recognizing that some existing benefits must yield to put in place a program that is affordable, sustainable and fair to all. A particular source of difficulty for adjusting benefits is a 1997 statute that, for over a decade, extended to vested employees a “nonforfeitable right” to receive pension benefits as provided under the laws governing the retirement system at the time they reached five years of service. As events have transpired, employees with sufficient length of service—currently 89% of all employees participating in PERS at the State level and in TPAF—have been spared any reduction in their right to future pension benefit accruals. This has kept pension costs unsustainably high and has impaired the effectiveness of almost all subsequent reforms of pension benefits, as these reforms have been limited to employees who lacked the seniority at the time of the reform to claim nonforfeitable rights.

Because of claims of constitutional protection, the ability of the Legislature to reduce pension benefits for individuals claiming nonforfeitable rights protection has been questioned. As a result, the Commission believes that the best means of ensuring the freedom to effect meaningful reform would be to amend the State Constitution to confirm, notwithstanding anything in the Constitution or laws of the State of New Jersey to the contrary, the power of the State to reduce existing pension and health benefits. If sufficient health benefits savings can be achieved to permit funding
of the reduced pension obligations, it would be possible to include in the amendment a guarantee of the pension funding specified in the payment schedule.

The amendment process requires approval by the voters in a general election. Given the public’s stake in the issue, having the public agree to the terms of this solution should be seen as a virtue.

What this means is that the commission feels that the 1997 reform agreement precludes freezing accruals so they want put a question on the November ballot that would invalidate that provision of the law. Wording on the ballot question will be hotly debated but if they want to be honest about it:

Public Question #1:

Official wording: Do you approve amending the Constitution to allow reductions in existing pension and health benefits for public employees?

Unofficial interpretation: Christie Whitman in 1997 wanted to reduce income taxes so she played games to get the state to not have to make any contributions into the pension system but to get that concession from the unions she had to obligate the state into guaranteeing benefits (even future accruals) for participants in the plans with at least 5 years of service. The state did sharply reduce (even eliminate in some years) their contributions and now benefits have to be reduced since there is not enough money in the system to even pay 50% of what would be due to the retirees ALONE. Hence, this ballot question.

]]>https://burypensions.wordpress.com/2015/02/25/cf3-why-a-ballot-question/feed/12burypensionsCF2: NJEA On Board?https://burypensions.wordpress.com/2015/02/25/cf2-njea-on-board/
https://burypensions.wordpress.com/2015/02/25/cf2-njea-on-board/#commentsWed, 25 Feb 2015 15:30:19 +0000http://burypensions.wordpress.com/?p=6657]]>One of the downloads on the New Jersey Pension and Benefit Study Commission website is a Roadmap for Reform: An Agreement with the New Jersey Education Association (NJEA) but excerpts from the 3-page Joint Memo do not show much in the way of agreement:

The attached “roadmap” sets forth the significant recommendations for how future discussions can take place to arrive at a resolution.

The participants in these discussions have acknowledged they do not have the power to speak on behalf of their members and that neither side has the power to speak for the State or any of the local government entities that may be affected by this proposal. However, the NJEA, together with the members of the Commission, believe that
pursuing the path outlined by this “roadmap” may well lead to an equitable resolution of this challenging impasse for all public school employees in the State of New Jersey.

As part of our effort, in addition to meeting with persons across the spectrum of interested stakeholders, Commission members engaged in extensive discussions with the leaders of the New Jersey Education Association, the public-sector union with the greatest impact on State finances. Those discussions led to a conceptual framework for moving forward and an accord on some but not all elements of the Commission’s proposal.

Most significantly, while there are details remaining to be worked out, there is agreement on the concept of “freezing” the existing pension plans, replacing them with new plans going forward, and transferring the existing and new plans to new entities in a form that will permit the greatest degree of employee control consistent with federal regulatory constraints for retirement plans for public employees.

And in Christie’s own words:
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But shortly after those words were spoken the NJEA on their website clarified their position in a statement that included the line:

While we believe some of the concepts in the report are worth exploring further, we have not yet agreed to anything in the report and we will not agree to some of what it contains.

So we have a joint agreement where one party has “not yet agreed to anything” and “will not agree to some” things. If that passes for agreement in Christie’s world then that explains a lot about those absurd ambitions as he must believe everyone he meets agrees he should be president.

]]>https://burypensions.wordpress.com/2015/02/25/cf2-njea-on-board/feed/12burypensionsCF1 – Christie Freeze: The Obvious Criticshttps://burypensions.wordpress.com/2015/02/24/cf1-christie-freeze-the-obvious-critics/
https://burypensions.wordpress.com/2015/02/24/cf1-christie-freeze-the-obvious-critics/#commentsWed, 25 Feb 2015 02:15:04 +0000http://burypensions.wordpress.com/?p=6648]]>A Roadmap to Resolution of New Jersey’s pension and benefit problems deserves its own series so here it is: my assessment of Christie-Freeze (since I could not think of an apt acronym I went with a combination of the major proponent and major feature) .

The next few blogs will examine aspects of the CF plan and we kick off with those who will be the biggest losers under it.

Last month he was appointed the new township administrator for Scotch Plains. Had Mirabella stayed in his freeholder position only (he has said he will hold both jobs) his annual pension on 1/1/18 after 27 years of service would have been about $14,727 ($30,000 / 55 x 27). With his second job added that annual pension jumps to $73,636 ($150,000 / 55 x 27). That $58,909 annual difference for a relatively young retiree with COLA adjustments is conservatively worth about a million dollars.

Who will pay that extra million dollars? Not the township of Scotch Plains which according to the PERS contribution schedule will only need to pay 11.92% of his salary (about $43,000 over 3 years). But under CF if Al Mirabella wanted to accrue $300,000 in pension benefits annually Scotch Plains taxpayers would have to pay it to him. They are not going to do that so if CF passes Al Mirabella loses a million dollars.

This happens often in Union County (and I suspect to some extent all over the state). Older politicians who cash in with sinecures that boost their pensionable salaries as they approach retirement: